A limited constitutional government calls for a rules-based, freemarket monetary system, not the topsy-turvy fiat dollar that now exists under central banking. This issue of the Cato Journal examines the case for alternatives to central banking and the reforms needed to move toward free-market money.

The more widespread use of body cameras will make it easier for the American public to better understand how police officers do their jobs and under what circumstances they feel that it is necessary to resort to deadly force.

Americans are finally enjoying an improving economy after years of recession and slow growth. The unemployment rate is dropping, the economy is expanding, and public confidence is rising. Surely our economic crisis is behind us. Or is it? In Going for Broke: Deficits, Debt, and the Entitlement Crisis, Cato scholar Michael D. Tanner examines the growing national debt and its dire implications for our future and explains why a looming financial meltdown may be far worse than anyone expects.

The Cato Institute has released its 2014 Annual Report, which documents a dynamic year of growth and productivity. “Libertarianism is not just a framework for utopia,” Cato’s David Boaz writes in his book, The Libertarian Mind. “It is the indispensable framework for the future.” And as the new report demonstrates, the Cato Institute, thanks largely to the generosity of our Sponsors, is leading the charge to apply this framework across the policy spectrum.

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Archives: 04/2013

If ever you wondered how important institutions were for changing the climate of ideas, the Chronicle of Higher Education released a cover article today, “How Conservatives Captured the Law,” that should settle the question. Written by Michael Avery and Danielle McLaughlin – she a Boston attorney, he a Suffolk University law professor and former president of the far left National Lawyers Guild, whom I’ve debated more than once – it’s a surprisingly dispassionate chronicle of the growth and influence of the Federalist Society over the past 30 years.

Cato, our outreach, and our Supreme Court Review come in for mention early on. And the Legal Studies Institute of The Fund for American Studies, in which I co-teach, gets credit at the outset. But the main focus is understandably on the Federalist Society. Reflecting on its origins at the society’s 25th anniversary gala, Justice Antonin Scalia remarked, “We thought we were just planting a wildflower among the weeds of academic liberalism, and it turned out to be an oak.” It did indeed, with a membership today of more than 50,000 lawyers and law students, lawyer chapters in 75 cities, and student chapters in every accredited law school in the country, the society last year held nearly 2,000 events, including many involving Cato people.

The authors’ dispassionate account notwithstanding, it takes little imagination to see where they stand:

The Federalist Society’s membership includes many brilliant and sincere theorists who raise important and interesting issues. On the other hand, the society’s critics say, its overall impact is reactionary. By glorifying private property, demonizing government intervention (particularly at the federal level), insisting that originalism is the only legitimate method of constitutional interpretation, embracing American exceptionalism as a reason to remain apart from global governance, and pushing related policies, these critics say, the society advocates a form of social Darwinism that has been discredited by mainstream American legal thought since the 1930s.

Social Darwinism? That must be how Progressives see the eclectic group that speaks and debates through the Federalist Society’s auspices, because without so much as a beat in between, the authors continue:

Membership includes economic conservatives, social conservatives, Christian conservatives, and libertarians, many of whom disagree with one another on significant issues, but who cooperate in advancing a broad conservative agenda. They generally support individual rights and a free market, and prefer states’ rights to action by the federal government.

We do indeed, discrediting the “Darwinism” – the Hobbesian war of all against all – that is the product today of the jurisprudence of the 1930s. And in that cooperation there is a lesson. To be sure, we don’t always agree. But we agree on enough to be able to work together to get something done. Read the whole piece to see how much has been done.

According to Venezuela’s National Election Council (CNE), Nicolás Maduro, the chavista candidate in yesterday’s presidential election, beat the opposition’s Henrique Capriles by less than 265,000 votes—the narrowest margin in a Venezuelan election since 1968.

However, there are good reasons to believe there was foul play. After polling stations closed yesterday, there were numerous reports of irregularities where security forces or armed gangs prevented the opposition from participating in the vote count. Also, even after 98 percent of the votes had been reported, it took the government-controlled CNE five hours to announce the election result. In previous years, when the government won an election, the CNE would quickly announce the results. But when the opposition won the 2007 constitutional referendum, it took the CNE many hours to do so.

Moreover, the result seemed to have caught the opposition by surprise. Prior to the announcement, the Capriles campaign seemed optimistic about the results they were receiving from all over the country (the opposition had representatives in most polling stations and they—as long as they were allowed—fed Capriles’ command with information about the vote count at each station). Capriles himself refused to recognize the result, saying that Maduro was the defeated candidate and that the numbers released by the CNE were different from those his campaign had. He demanded a full recount of the votes.

Tellingly, Maduro’s victory speech didn’t sound like one. Maduro spent much of his address convincing people he had won fairly. Then he claimed that not recognizing his victory would amount to a coup. He seemed like a man with something to hide.

As on October 7th, when the late Hugo Chávez defeated Capriles by a much larger margin, the election wasn’t free or fair. In her column today [requieres suscription] in the Wall Street Journal, Mary O’Grady describes all the challenges that the opposition faced in this election cycle, including the support that Maduro received from Cuba’s security and intelligence apparatus. The fact that, even against those odds, Capriles managed to get 49.07% of the vote and be within a whisker of victory (at least according to the official report) shows that Maduro would’ve most certainly been defeated in a fair election.

It is now up to the opposition to document all the irregularities and prove that Maduro’s victory was fraudulent. Responsible governments in the Americas, including the U.S government, should withhold their recognition of Maduro’s victory until a full recount takes place.

The Sunlight Foundation blogs today about the 6,503 registered tax lobbyists in Washington, and they provide 11 examples of the changes that these folks are pushing for.

I share Sunlight’s concern about special-interest lobbying, but their list actually drives home the more important point that tax simplification should begin by getting the tax base right first.

In this Cato study, I described why consumption-based taxation would be far superior to the current income tax for both growth and simplification reasons. A consumption-based tax—such as the Hall-Rabushka flat tax—would get rid of two of the most complex parts of the current code—capital gains and the capitalization of investment (which involves depreciation and amortization).

Let’s look at Sunlight’s list of 11 proposed tax changes:

Five of them (#1, #3, #7, #10, #11) have to do with capitalization. Number 7, for example, regards allowing fire equipment to be expensed rather than depreciated. But under a consumption tax, all investments would be expensed (that is, written off in the first year), which is both simpler and more efficient.

Two of them (#6, #8) have to do capital gains. Capital gains taxes would abolished under a consumption tax.

Two of them (#4, #9) are tax credits. Almost all tax credits are bad tax policy, including these two. Number 9 is a proposal for a $500 tax credit for hearing aids. Good grief.

The key factor that causes rising income tax complexity is that the tax base is inherently difficult to measure. The Haig-Simons measure of income favored by many academic theorists is economically damaging and too impractical to use in the real world. As a result, policymakers have fallen back on ad hoc and inconsistent rules to define the income tax base. That intensifies complexity and creates instability as policymakers gyrate between different definitions of the tax base. In addition, the lack of a consistently defined tax base increases the use of the tax code for special-interest tax breaks, thus further adding to the system’s complexity.

The complexity and inefficiency of the individual and corporate income taxes have led to great interest in replacing them with a consumption-based tax. The leading consumption-based tax proposals, including the national retail sales tax and the Hall-Rabushka flat tax, could dramatically simplify federal taxation. Those tax systems would eliminate many of the most complex aspects of federal taxation, including depreciation accounting and capital gains taxation.

Imposing the largest federal tax on income was a historic mistake: no simple, efficient, and stable measure of income has been found in nine decades of the income tax. It is time to recognize this mistake and replace the income tax with a consumption-based alternative.

It’s Tax Day, and for millions of Americans that means ponying up to the IRS. The federal government does many things these days—most of which would be more efficiently carried out at the local level, or in the private sector. But Uncle Sam also engages in a particular form of charity that many Americans overlook: spending many tens of billions of dollars to defend wealthy, developed nations.

A new Cato infographic puts it all in perspective. It shows how much American taxpayers spend to subsidize the security, and to defend the interests, of other nations that are more than capable of defending themselves.

Americans lived for decades with the fear of instant death from a Soviet nuclear strike. The People’s Republic of China has acquired a similar, though more limited, capability. Nothing happened in either case, because even evil people who acted like barbarians at home refused to commit suicide abroad.

So it is with North Korea. A Defense Intelligence Agency report that Pyongyang may have miniaturized a nuclear weapon for use on a missile has created a predictable stir. Yet the analysis was carefully hedged, and Washington’s top security leadership, ranging from Defense Secretary Chuck Hagel to Director of National Intelligence James Clapper dismissed the seriousness of the threat.

If the so-called Democratic People’s Republic of Korea was lucky, it could successfully launch its longest range missile, topped by a warhead with explosives rather than a nuclear weapon, without the rocket blowing up or falling back on the DPRK. With additional luck, the missile might hit somewhere in Alaska or Hawaii, though Pyongyang would have little control over the actual strike zone.

But if the missile “worked” in this way, the North’s luck would quickly end. The United States would launch several nuclear-topped missiles and Pyongyang, certainly, and every urban area in the North, probably, would be vaporized. The “lake of fire” about which the DPRK has constantly spoken would occur, all over North Korea. Pretty-boy Kim Jong-un wouldn’t have much to smile about then.

The latest DPRK crisis should trigger a policy shift in Washington. Once the immediate furor has passed, the Obama administration should begin bringing home the 28,500 U.S. troops stationed in the Republic of Korea, and then end America’s formal security guarantee. Once Washington no longer confronted the North, the latter would turn its ire elsewhere.

The ROK should take over its own defense, while building a better relationship with democratic neighbors, most obviously Japan, which also has been threatened by the North. At the same time, the Obama administration should hint at a rethink of Washington’s traditional opposition to the possibility of South Korea and Japan building nuclear weapons. China should understand that failing to take strong measures to curb its ally’s atomic ambitions could unleash the far more sophisticated nuclear potential of America’s allies.

North Korea is a practical threat to the United States only to the degree which Washington allows. Better policy-making would reduce America’s role in Pyongyang’s ongoing tragic farce.

Alas this morning the Supreme Court declined to reviewKachalsky v. Cacace the challenge to New York City’s effective ban on carrying firearms (which I’ve previously discussed). To correct some early media reports, this does not mean that the Court upheld the law or affirmed the decision of the U.S. Court of Appeals for the Second Circuit. It simply means that the scope of the Second Amendment right to keep and bear arms outside the home remains an open question, subject to divergent rulings in the lower courts.

But those lower-court rulings have indeed diverged greatly, creating what lawyers call a “circuit split.” The Second Circuit in Kachalsky applied a nominal intermediate scrutiny that ultimately became perfunctory deference to the legislature, with the burden on the plaintiffs to justify the exercise of their rights. The Seventh Circuit, meanwhile, in an opinion by Judge Richard Posner in Moore v. Madigan, struck down Chicago’s complete prohibition on carrying firearms, finding that Illinois could not justify such extreme measures. For “a severe burden on the core Second Amendment right of armed self-defense,” the same court ruled in an earlier case, the government must provide “an extremely strong public-interest justification and a close fit between the government’s means and its end.”” The D.C. and Fourth Circuits, meanwhile, have presumed the constitutionality of legislated restrictions, although D.C. Circuit Judge Brett Kavanaugh wrote an important dissent suggesting that the scope of the right to carry should be determined by analogizing historical practice and precedent.

Those who follow firearms policy now recognize that this issue that was left open by District of Columbia v. Heller – the scope of the individual right that the Second Amendment protects – is crying out for resolution. As Cato said in the brief we filed supporting the Kachalsky petition:

The Second Amendment’s scope and the means of assessing restrictions on that right thus remain largely undefined. No other constitutional right has been so left to fend for itself in the lower courts. This Court has not hesitated to seize opportunities to ensure the protection of other constitutional rights—recognizing historically based categorical rules, developing comprehensive methodologies, and announcing robust standards. The Second Amendment merits, and now needs, the same solicitude.

Whatever analytical approach the Court ultimately employs, the time has come to begin filling in the picture that the Court outlined in Heller, and to bring some harmony to the cacophony below.

We’ll now have to wait a bit longer for the Court to do that. As is always the case, the Court doesn’t give reasons for granting or denying review, but it’s possible that the Court didn’t want to take a gun case from the Second Circuit, which has jurisdiction over Connecticut, where the Newtown shootings occurred. Or it may be waiting for Moore v. Madigan, because taking a petition brought by a state government would be seen as less discretionary – and would also allow the Court to focus on a complete ban on the right to carry rather than severe restrictions. (D.C. and Illinois are the only jurisdictions that have flat bans, while 10 states, including New York, “may issue” such licenses in practice, but most rarely do in practice except to celebrities and former law enforcement officers. The vast majority of states “shall issue” carry licenses unless the applicant has a felony conviction or mental illness, while a handful don’t require a license at all.)

In any event, the issue isn’t going away and there’s only so long that the Court will be able to bear the legal incongruity and uncertainty. As former solicitor general Paul Clement – who represented the NRA in McDonald v. Chicago – put it, “They’re eventually going to have to take it.”

Last year, the United States lost three cases at the WTO in which domestic regulations were challenged by our trading partners as disguised protectionism. In each of the three cases—a ban on clove cigarettes, dolphin-safe labels for tuna, and country-of-origin labels for meat—the WTO found that the challenged regulation impacted the competitiveness of foreign goods significantly more than domestic like products and that this discrimination did not further the goals of the regulation. The United States must amend each of these regulations in the next few months or the complaining governments will be able to pursue WTO-authorized trade sanctions against us.

The offending regulations don’t have to be repealed to be made WTO-compliant, but the United States must do at least one of three things for each of them:

Diminish the negative impact on foreign products,

Increase the negative impact on domestic products, or

Better validate the different treatment.

In the first attempt at reform, the Administration chose Option 3. Existing regulations require that meat sold in grocery stores carry country-of-origin labels that differ based on the national origin of the animal before it was slaughtered in the United States. Last year, the WTO determined that tracking and recording requirements in the law made it more costly for U.S. slaughterhouses to purchase foreign-raised cattle, and that the burden was not proportional to the amount of origin-related information ultimately passed on to consumers. The Department of Agriculture proposed in early March to “comply” with the WTO ruling by increasing the amount of information the labels would carry. The reforms would require labels on meat sold in grocery stores to say specifically where the animal was born, where it was raised, and where it was slaughtered.

It’s vitally important to recognize that this new regulation will do absolutely nothing to improve market access for foreign cattle or to reduce the discriminatory nature of the regulation. What it will do is make the discrimination somewhat less obviously protectionist. It will not reduce that protectionism, settle the dispute, or in any way liberalize trade. On the contrary, the Administration took the opportunity to further privilege the special interests behind the original law.

For the second and most recent attempt at reform—this time for the dolphin-safe label requirements—the administration chose Option 2 (Increase the negative impact on domestic products). Packaged tuna sold in the United States can only be labeled dolphin-safe if it is caught according to specific guidelines mandated by law. These guidelines are different depending on where the tuna is caught and are particularly onerous for fisheries operating off the coast of Mexico. The WTO found that the U.S. regulation’s lax standards for tuna caught in the rest of ocean did not further the goal of protecting dolphins but rather demonstrated the law’s protectionist nature.

The new regulation continues to single out the Eastern Tropical Pacific for special treatment but also makes it slightly more difficult for fisheries operating elsewhere to earn a dolphin-safe label. The Mexican government has yet to respond to the reform proposal. The Mexican tuna industry, however, has unsurprisingly voiced its continued opposition. The reform is definitely not as robust as it could have been—and quite likely not enough to make the regulation sufficiently even-handed—but at least it does something to diminish the discrimination.

The third restriction the United States must reform is the ban on clove cigarettes. In 2009 Congress passed a new tobacco control law, which gave the FDA the power to regulate tobacco products and banned flavored cigarettes—except for menthols. There are basically two kinds of flavored cigarettes. One is clove cigarettes made almost exclusively in Indonesia and smoked by less than 1% of American smokers. The other is menthol cigarettes made almost exclusively in the United States and smoked by around 25% of American smokers. The ostensible purpose of the ban was to discourage youth smoking by removing flavored cigarettes from the market, but the judges at the WTO couldn’t figure out how that goal was furthered by exempting the most popular kind of flavored cigarette from the ban.

In the cigarette case, none of the compliance options seems likely. Option 1 would see the U.S. ending the ban on clove cigarettes while Option 2 would see the U.S. banning menthols. Perhaps Option 3 could be pursued if the FDA can conjure up a study showing that kids who would have taken up smoking because they liked cloves will now turn away from tobacco altogether instead of just smoking menthols or regular cigarettes. Options 1 and 2 face significant political hurdles. Option 3 faces significant reality hurdles.

In each of these regulations, the protectionist aspect frustrates the goals of the activists initialing supporting them. How did these laws come to be passed in the first place if they do such a bad job meeting their own goals? Sallie James and I try to answer that question in a brand new Cato Policy Analysis on regulatory protectionism. We also propose a number of legal and political tools that can help prevent progressive causes from unwittingly generating unnecessary trade barriers. You can come hear about these and other unfortunate examples and, if you are so inclined, critique our proposals at a forum we’re hosting at Cato this Thursday.